BSP: No property bubble in PH

Posted at 07/24/14 5:38 PM

MANILA, Philippines - There is still no asset bubble in the Philippine property market, according to a Bangko Sentral ng Pilipinas official.

"Lending to real estate is one of the fastest growing components of credit... Whether or not we are in a possible bubble, I don't think we're there yet but it's always a good reminder to link every credit decision to capital," BSP Deputy Governor Nestor A. Espenilla, Jr. said.

This as banks start implementing new measures placed by the BSP in monitoring credit to the property industry.

Last month, the BSP required banks to undergo a separate stress test. The stress test is aimed at assessing the impact of banks' exposure to the real estate sector once borrowers fail to service their loans.

Under BSP Circular no. 839, banks should be able to maintain a common equity Tier 1 capital ratio of at least 6 percent and a minimum risk-based capital adequacy ratio of 10 percent, even if 25 percent of a lender’s exposure to the property sector has been written off.

The measure takes effect this month.

"Basically, REST (Real Estate Stress Test) limit is a signal to the industry to pay close attention to their real estate exposures because of the potential risk if you are too concentrated... It links exposure to available capital. It's not saying don't lend, but you have to make sure you manage it," Espenilla said.

As of end-2013, banks' exposure to the property sector reached P1.006 trillion from P939.8 billion in the third quarter of last year. Eighty-four percent of the loans are to finance commercial and residential properties, while the rest are investments in the property sector.